Prediction: 3 Artificial Intelligence (AI) Stocks That Will Be Worth More Than Nvidia in 3 Years

Nvidia (NVDA -2.25%) has been one of the biggest beneficiaries of the booming demand for anything related to artificial intelligence (AI). The company’s GPUs are valuable hardware used to train large language models that provide the backbone for generative AI. Big tech companies and cloud providers are snapping up as many Nvidia chips as they can get their hands on.

The results were nothing short of phenomenal for Nvidia. Over the past two years, Nvidia has seen its market cap climb from about $424 billion to $3.1 trillion. Currently it is right on top Microsoft as the second largest company in the world only behind Apple.

While Nvidia is getting a lot of attention, it’s important to remember that it’s not the only AI stock you can invest in. There are dozens of other great companies participating in the growth of AI. And the long-term outlook for some of them is even better than Nvidia’s. Therefore, I predict that these three companies could end up surpassing the value of Nvidia in the next three years.

Image source: Getty Images.

1. Meta platforms

Meta platforms (META -1.30%) is one of Nvidia’s biggest customers. CEO Mark Zuckerberg recently pledged to stockpile 350,000 of the chipmaker’s H100 GPUs by the end of this year. The company’s capital spending, which management expects to be between $37 billion and $40 billion this year, is rivaled only by big public cloud companies like Microsoft and Alphabet (GOOG 0.30%) (GOOGL 0.33%). And management expects Meta capex to continue to grow in 2025.

These massive investments won’t pay off directly for some time, but Meta is better positioned than any other company to integrate AI capabilities into its products. It sees opportunities to improve its advertising business, develop its business messaging service (with custom AI chatbots), build the most popular AI assistant for consumers, and increase engagement on Facebook, Instagram and its apps messenger.

This should lead to strong revenue and earnings growth over the long term, even with increased depreciation expense from increased data center investments. Importantly, spending growth will slow over time as Meta determines exactly how much data center capacity it needs to train and use its generative AI developments.

The stock is currently trading at a forward PE of around 26, which is reasonable for a company with growth prospects. But Meta could beat earnings estimates if its generative AI features increase ad pricing and engagement on Facebook and Instagram and open the door to new revenue opportunities through business messaging and AI assistant interactions. With a market cap of around $1.35 trillion, it could quickly grow to overtake Nvidia in the next three years if one of its AI efforts starts showing really good results.

2. Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing (TSM -1.29%)also known as TSMC, is the largest chip maker in the world. When a company like Nvidia designs a new chip, it contracts with TSMC to manufacture that chip.

TSMC’s biggest advantage is its size. It takes over 60% of all chip manufacturing expenses. This gives it more money to reinvest in developing its capabilities to produce faster, more powerful and more energy-efficient chips. With its cutting-edge design capabilities, it is able to maintain a dominant market share because chip designers cannot achieve the same results from anyone else.

TSMC is relatively agnostic about who designs the chips. It can create an Nvidia chip as easily as a custom chip from Meta, Microsoft or Alphabet. And it does just that. That leaves it in a much less precarious position than Nvidia when it comes to the future of AI data center chips.

Many of Nvidia’s largest customers have their own chip designs specifically for training and using large language models. These chips are not as flexible to use as Nvidia’s, but they are more energy efficient and less expensive to purchase. This makes them increasingly valuable as companies like Meta, Alphabet, Microsoft and others activate and expand their AI development.

TSMC, meanwhile, can benefit from rising spending and increased competition for its limited resources. Its stock trades around 26 times forward earnings, but it’s arguably worth a higher multiple, as strong demand and competition should benefit its bottom line, and its earnings are much better protected in a downturn. By comparison, Nvidia trades for a forward earnings multiple of 48. The true value for both companies is probably a multiple somewhere in between. If TSMC sees multiple expansions and Nvidia sees a contraction, TSMC could overtake Nvidia’s market cap over time.

3. The alphabet

Alphabet is already the fourth largest company in the world, but its market capitalization is about $1 trillion behind Nvidia. Still, there’s good reason to believe the Google owner will grow in value faster than the chipmaker in the future.

At the heart of Alphabet is Google Search. And while it faces regulatory pressure, it’s unlikely to lose its crown as the world’s most popular search engine. This ensures that Google remains a key part of marketers’ advertising budgets.

Importantly, AI assistants like ChatGPT or OpenAI’s Meta AI are not as big a threat as investors once feared. Google used its own artificial intelligence, based on Gemini LLM, to provide direct answers to many search queries, with links to relevant sources. Management says its AI Overviews result in higher search usage and higher user satisfaction. It also uses artificial intelligence to support new ways of searching, including making videos with your phone or circling content on an app or web page. Both should lead to increased usage.

But AI has the potential to significantly boost Google’s cloud platform, which surpassed $10 billion in quarterly revenue for the first time last quarter. Google is winning many high-profile customers, including Apple, for its AI development platform on Google Cloud. Meanwhile, its Gemini for Workspace software is helping to increase average revenue per user and attract new customers.

Alphabet is certainly spending a lot to win these customers. It is expected to spend about $50 billion on capital expenditures this year, investing mainly in servers and data centers. But the payoff could be huge as it invests ahead of the demand curve for AI development. Google Cloud can become a much bigger part of the business, providing a nice complement to the search business.

With the stock trading at just 22 times forward earnings, there’s room for multiple extensions. That’s especially true when you consider that the company’s bottom line should support very large growth thanks to significant share buybacks supported by Alphabet’s massive annual free cash flow. It’s actually surprising that investors don’t already value Alphabet more than Nvidia.